This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, click the "Reprints" link at the bottom of any article.

March 8, 2011

Nonprofits Must Take Action to Weather the Recession

The nonprofit world has suffered greatly from the “Great Recession.” Most nonprofits have struggled, and some have closed their door as funding has decreased from just about every source—individuals, foundations, corporations and the government—as well as from “earned revenue,” e.g. ticket sales, fees, etc.

For example, The Chronicle of Philanthropy reported in February that the median gift amount from the 50 most generous individual donors fell 47% from 2007 to 2010, (see “Wealthiest Donors Turned Frugal in 2010: The Chronicle of Philanthropy.”)Total contributions last year from those individuals were the lowest since the publication began keeping track in 2000.

At the same time, the picture on the government front is bleak. Many states are slashing funding, and service agencies and arts organizations are prime targets. At the federal level, discussions have moved from whether to eliminate funding for popular programs to a debate about how many billions to cut.

On the positive side, with the stock market rallying, fears of a double-dip recession ebbing and uncertainty about some estate tax rules resolved, individual giving could rise in 2011. Wealth managers have a unique responsibility to guide their clients to assure their donations have an impact.

Ensuring Nonprofits’ Survival

However, formidable challenges remain. As donors consider supporting nonprofits, they should make sure that these organizations take steps to survive in the current economic climate—and to prepare for inevitable future downturns.

1) Evaluate, evaluate, evaluate. Determine what’s working in one program or operational area and apply it to others. We have found that sustainable organizations act quickly and decisively on the basis of findings from program evaluations. No matter how cherished a program might be, if it’s not producing measurable results, it may have to be reassessed, retooled or jettisoned altogether.

2) Cut costs. Hold off on new initiatives and reduce spending on non-essential items. Reduce staff or think of creative ways to cut the budget; in the last two years, countless nonprofit organizations made difficult decisions to balance their budgets including salary reductions, unpaid furloughs, and elimination of retirement programs. Many ramped up volunteer recruitment programs, and others began thinking about collaborating or merging with similar organizations.

3) Focus on planning. Develop contingency plans to prepare your organization for the range of challenges that lie ahead. Nonprofit organizations have to take a clear-eyed look at their mission and decide what’s essential and what might be eliminated.

4) Strengthen relationships with key funders. (This should go without saying…but when revenues decline and the future looks dim, some groups adopt a bunker mentality.) Reach out to the individuals and organizations that have supported the organization in the past, tell them about the contingency plans and ask if they are willing to temporarily increase their support during a particularly difficult period. They also may be able to recommend other funding sources. A corollary to strengthening funder relationships is to ask board members to become more actively involved.

If you serve on a nonprofit board, it is your responsibility to provide oversight and input on the organization’s financial condition. Every step the nonprofit can take now to stabilize its finances will pay off later, no matter how long the recovery takes.